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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2000
Commission File Number: 001-14145
NEFF CORP.
(Exact Name of registrant as specified in its charter)
DELAWARE 65-0626400
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3750 N.W. 87th AVENUE, SUITE 400, MIAMI, FLORIDA 33178
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (305) 513-3350
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
-------------------- ---------------------
Class A Common Stock
par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
None
Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes __ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements by
reference in Part III of this Form 10-K or any amendment to this Form 10-K [X].
As of March 1, 2001, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $5.9 million. As of March 1,
2001, there were 16,065,350 shares of the registrant's Class A Common Stock
outstanding.
Documents incorporated by reference:
Portions of the Company's Proxy Statement in connection with its Annual Meeting
to be held on June 1, 2001 (the "2001 Proxy Statement"). Specifically, the
sections in the 2001 Proxy Statement entitled "Ownership of Shares of Certain
Beneficial Owners," "Certain Relationships and Related Transactions," "Executive
and Director Compensation," and "Compensation Committee Interlocks and Insider
Participation" are incorporated by reference into Part III of this Report.
Part I
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The matters discussed in this Annual Report may include forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Act of 1934, as amended. Statements in
Item 1, Business, and Item 7, Management's Discussion and Analysis of Operations
and Financial Condition, of this Annual Report, together with other statements
beginning with such words as "believes", "intends", "plans", "expects" and
similar expressions include forward-looking statements that are based on
management's expectations given facts as currently known by management. Actual
results may differ materially from those discussed in these forward-looking
statements. Factors that could cause our future results to differ materially
from those in the forward-looking statements are described in this Annual Report
under the section "Risk Factors" and include, but are not limited to our
dependence on additional capital for future growth, the high degree to which we
are leveraged, the restrictions on our operations imposed by our debt
instruments, competition in our industry, and general economic conditions.
Any forward-looking statements speak only as of the date on which the
statement is made and we undertake no obligation to update any forward-looking
statement or statements to reflect events or circumstances occurring after the
date on which the statement is made. New factors that may affect our operating
results emerge from time to time, and it is not possible for management to
predict the materialization of all new factors. Further, management cannot
assess the impact of each factor on our business or the extent to which any
factor, or combinations of factors, may cause our actual results to differ
materially from those discussed in any forward-looking statements.
ITEM 1. BUSINESS
General
Neff Corp. ("Neff" or the "Company") is one of the largest equipment
rental companies in the United States, with 82 rental locations in 17 states
as of March 1, 2001. We rent a wide variety of equipment, including backhoes,
air compressors, loaders, lifts and compaction equipment, to construction
and industrial customers. In addition, we sell new and used equipment, spare
parts and merchandise and provide ongoing repair and maintenance services.
According to industry sources, the equipment rental industry grew from
approximately $600 million in revenues in 1982 to over $20 billion in 2000. This
growth has been driven primarily by construction and industrial companies, and
other equipment users such as governmental entities, that have increasingly
outsourced equipment needs to reduce capital investment in non-core assets,
convert costs from fixed to variable, lower storage and maintenance costs and
access a broad selection of equipment, including the latest technology. The
equipment rental industry is highly fragmented, with an estimated 18,000
equipment rental companies in the United States. Relative to smaller
competitors, we have several advantages, including increased purchasing power,
larger inventories to service larger accounts and the ability to transfer
equipment among rental locations in response to changing patterns of customer
demand.
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Competitive Strengths
We believe that we have several competitive strengths that provide us with
the opportunity for increased profitability.
Strong Market Position. Neff is one of the largest construction and
industrial equipment rental companies in the United States, and is a leading
competitor with a significant presence in the Southeast and Gulf Coast regions.
We operate 82 rental locations in 17 states, including Florida, Georgia,
Alabama, South Carolina, North Carolina, Tennessee, Louisiana, Texas, Oklahoma,
Arizona, Nevada, Utah, California, Oregon, Washington, Virginia and Colorado.
From December 31, 1995 to December 31, 2000, we increased our equipment rental
locations from 8 to 82 and expanded our rental fleet from $62 million to $460
million based on original cost. We believe our size gives us an advantage over
our smaller competitors, while our geographic diversity helps insulate us from
regional economic downturns.
High Quality Rental Fleet. We believe our rental fleet is one of the
newest, most comprehensive and well-maintained rental fleets in the equipment
rental industry. As of December 31, 2000, the average age of our rental fleet
was approximately 26 months. We make ongoing capital investment in new
equipment, engage in regular sales of used equipment and conduct an advanced
preventative maintenance program. We believe this maintenance program increases
fleet utilization, extends the useful life of equipment and produces higher
resale values. We expect to reduce our sales of used equipment during 2001 to
reduce our capital fleet expenditures which should result in an average rental
fleet age of 32 months at December 31, 2001.
Excellent Customer Service. We differentiate ourselves from our competitors
by providing high quality, responsive service to our customers. Service
initiatives include (1) reliable on-time equipment delivery directly to our
customers' job sites; (2) on-site repairs and maintenance of rental equipment by
factory trained mechanics, generally available 24 hours a day, seven days a
week; and (3) ongoing training of an experienced sales force to consult with
customers regarding their equipment needs.
State-of-the-Art Management Information System. We have developed a
customized, state-of-the-art management information system. We use this system
to maximize fleet utilization and determine the optimal fleet composition by
market. The system links all of our rental locations and allows management to
track customer and sales information, as well as the location, rental status and
maintenance history of every piece of equipment in the rental fleet. Rental
location managers can search our entire rental fleet for needed equipment,
quickly determine the closest location of such equipment, and arrange for
delivery to the customer's work site, maximizing equipment utilization.
Experienced Management Team. Since 1995, we have significantly increased
the quality and depth of our management team. Our senior management team has
extensive experience in the equipment rental industry and our regional
management has, on average, 22 years of experience and substantial knowledge of
the local markets served within their regions.
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Business Strategy
Our objective is to increase revenues, cash flow and profitability by
building and maintaining a leading market position in the equipment rental
industry. Key elements of our business strategy include:
Improve Utilization of Fleet. We will continue our efforts to improve the
utilization of our rental fleet by carefully managing inventory levels at all
locations. We carefully weigh the benefits of each new investment in rental
fleet against the returns expected on that investment at our locations. In
addition, we will continue to adjust the selection of equipment available at
each location in order to provide product lines that are tailored to most
efficiently meet the demands of our customers.
Reduce Outstanding Debt. We intend to use all available free cash flow from
operations to pay down outstanding debt on our credit facility during 2001. By
reducing our outstanding debt, we hope to decrease leverage, reduce interest
expense and increase profitability.
Increase Profitability of Recently Opened Rental Locations. Since January
1, 1998, we have opened 10 start-up rental equipment locations including 4
locations in 2000, 1 location in 1999 and 5 locations in 1998. Because we incur
significant expenses in connection with the opening of new locations, management
believes that our financial performance does not yet fully reflect the benefit
of these rental locations. Based on our historical experience, a new equipment
rental location tends to realize significant increases in revenues, cash flow
and profitability during the first three years of operation as more prospective
customers become aware of its operation and as the composition of the rental
equipment fleet is customized to local market demand. Because there is
relatively little incremental operating expense associated with such revenues,
cash flow and profitability increase significantly as a rental location matures.
Selective Openings of Start-up Equipment Rental Locations. We intend to
explore the possibility of expanding our operations by opening additional
start-up locations. We have been successful in opening start-up equipment rental
locations in existing markets and new markets. Our decision to open a start-up
equipment rental location is based upon a review of demographic information,
business growth projections and the level of existing competition.
Operations
Our operations primarily consist of renting equipment, and to a lesser
extent, selling used equipment and complementary parts and merchandise to a wide
variety of construction and industrial customers. In addition, to service our
customer base more fully, we also sell new equipment and provide ongoing
maintenance and repair services for the equipment we sell and rent.
Our locations are grouped together by geographic area into different
regions. A regional vice-president oversees operations within each region.
Equipment Rentals. We are one of the largest equipment rental companies in
the United States, with 82 rental locations in 17 states. Our rental fleet is
comprised of a complete line of light and heavy construction and industrial
equipment from a wide variety of manufacturers, including John Deere, Case,
Bomag, Bosch, Sullivan Industries, Ingersoll-Rand, Gradall, Lull, JLG, Bobcat,
MultiQuip, Volvo and Wacker.
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Major categories of equipment represented the following percentages (based
on original cost) of our total rental fleet as of December 31, 2000:
Percentage of Total Rental Fleet
Major Equipment Category (based on original cost)
-----------------------
Earthmoving ............... 40.0 %
Material Handling ............... 18.5
Other ............... 14.4
Aerial ............... 9.5
Trucks ............... 6.2
Compaction ............... 3.2
Compressors ............... 3.0
Cranes ............... 2.0
Welders ............... 1.5
Lighting ............... 0.7
Generators ............... 0.5
Pumps ............... 0.5
We attempt to differentiate ourselves from our competitors by providing a
broad selection of new and well-maintained rental equipment, and through
high-quality, responsive service to our customers. As of December 31, 2000, our
equipment rental fleet had an original cost of approximately $460 million and an
average age of 26 months, which management believes compares favorably with
other leading equipment rental companies. We make ongoing capital investments in
new equipment, engage in regular sales of used equipment and conduct an advanced
preventative maintenance program. This program increases fleet utilization,
extends the useful life of equipment and produces higher resale values.
In addition to providing a new and reliable equipment rental fleet,
management believes providing high quality customer service is essential to our
future success. The equipment rental business is a service industry requiring
quick response times to satisfy customers' needs. Though some activity is
arranged with lead-time, much of the rental initiation process takes place
within a 48-hour period. Consequently, equipment availability, branch location
and transportation capabilities play a major role in earning repeat business.
Rental customers prefer a quick selection process and seek efficient
communication when ordering equipment. Punctuality and reliability are key
components of the servicing process, as well as maintenance performance, timely
equipment removal at the end of the rental period and simplified billing.
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Our service initiatives include:
o reliable on-time equipment delivery directly to customers' job sites;
o on-site repairs and maintenance of rental equipment by factory trained
mechanics, which are generally available 24 hours a day, seven days a
week; and
o ongoing training of an experienced sales force to consult with customers
regarding their equipment needs.
New and Used Equipment Sales. We maintain a regular program of selling used
equipment in order to adjust the size and composition of our rental fleet in
response to changing market conditions and our business plan. Management
attempts to balance the objective of obtaining acceptable prices from equipment
sales against the revenues obtainable from future rentals of the equipment. We
are generally able to achieve favorable resale prices for our used equipment due
to our strong preventative maintenance program and our practice of selling used
equipment before it becomes obsolete or irreparable. We believe the proactive
management of our rental fleet allows us to adjust the rates of new equipment
purchases and used equipment sales to maximize equipment utilization rates and
respond to changing economic conditions. Such proactive management, together
with our broad geographic diversity, minimizes the impact of regional economic
downturns. During 2001, we expect to reduce the level of used equipment sales in
order to reduce the amount of capital expenditures made on new rental fleet
equipment. In order to serve our customer base more fully, we also sell new
equipment to customers.
Parts and Service. We sell a full complement of parts, supplies and
merchandise to our customers in conjunction with our equipment rental and sales
business. We also offer maintenance service to our customers that own equipment
and we generate revenues from damage waiver charges, delivery charges and
warranty income. We believe that these revenues are more stable than equipment
sales revenues because of the recurring nature of the parts and service
business. We also believe that revenues from the parts and service business may
actually increase during economic downturns as customers postpone new equipment
purchases and instead attempt to maintain their existing equipment.
Management Information System
We have developed a state-of-the-art, customized management information
system, that is capable of monitoring our operations on a real-time basis. We
currently employ eight management information system employees who continually
update and refine the system. This system links all of our rental locations and
allows management to track customer and sales information, as well as the
location, rental status and maintenance history of every piece of equipment in
the rental fleet. We use this system to maximize fleet utilization and determine
the optimal fleet composition by geographic market.
Using this system, branch managers can search our entire rental fleet for
needed equipment, quickly determine the closest location of such equipment and
arrange for delivery to the customer's work site. This practice helps diminish
"lost rents," improves utilization and makes equipment available in markets
where it can earn increased revenues. Our communications system can handle
multiple protocols and allows the integration of systems running on different
platforms.
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Customers
Our customers include commercial, industrial and civil construction
contractors, manufacturers, public utilities, municipalities, golf courses,
shipyards, commercial farmers, military bases, offshore platform operators and
maintenance contractors, refineries and petrochemical facilities and a variety
of other industrial businesses.
During 2000 we served over 30,500 customers. Our top 10 customers
represented 3.9% of our total revenues in 2000. Our rental equipment customers
vary in size from large Fortune 500 companies who have elected to outsource much
of their equipment needs to small construction contractors, subcontractors, and
machine operators whose equipment needs are job-based and not easily measured in
advance. Our new and used equipment sales customers are generally large
construction contractors who regularly purchase wholesale goods and annually
budget for fleet maintenance purchases.
We do not currently provide our own purchase financing to customers. We
rent equipment, sell parts, and provide repair services on account to customers
who are successfully screened through a credit application process. Customers
can finance purchases of large equipment with a variety of creditors, including
manufacturers, banks, finance companies and other financial institutions.
Sales and Marketing
We maintain a strong sales and marketing orientation throughout our
organization in order to increase our customer base and better understand and
serve our customers. Managers at each of our branches are responsible for
supervising and training all sales employees at that location and supervising
the sales force by conducting regular sales meetings and participating in
selling activities. Managers develop relationships with local customers and
assist them in planning their equipment requirements. Managers are also
responsible for managing the mix of equipment at their locations, keeping
abreast of local construction activity and monitoring competitors in their
respective markets.
To stay informed about their local markets, salespeople track new equipment
sales and construction projects in the area through Equipment Data Reports, FW
Dodge Reports and PEC Reports (Planning, Engineering and Construction), follow
up on referrals and visit construction sites and potential equipment users who
are new to the local area. Our salespeople use targeted marketing strategies to
address the specific needs of local customers.
Purchasing
We purchase equipment from vendors with reputations for product quality and
reliability. Our Vice President of Asset Management and Procurement directs
fleet purchasing, asset utilization and fleet maintenance for our rental fleet.
We believe the quantity of equipment we purchase enables us to purchase
equipment directly from vendors at lower prices and on more favorable terms than
many smaller competitors. We seek to maintain close relationships with our
vendors to ensure the timely delivery of new equipment. We do not rely on any
one vendor exclusively for a particular type of equipment, and we believe that
we have sufficient alternative sources of supply for the equipment we purchase,
in each of our principal product categories.
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The following table summarizes our principal categories of equipment and
specifies our major suppliers of such equipment:
Product Category Primary Vendors
Air Compressors and Equipment......................... Ingersoll-Rand, Sullivan and Sullair
Earthmoving Equipment (such as Backhoes,
Loaders, Dozers, Excavators and Material
Handling Equipment)................................. John Deere, Case, JCB, Kobelco, Volvo and Bobcat
Compaction Equipment, Rollers
and Recyclers .................................... Bomag, Wacker, MultiQuip and Rammax
Pumps................................................. MultiQuip, Wacker and Thompson
Generators............................................ MultiQuip, Wacker and Yamaha
Welders............................................... Miller and Lincoln
Electric Tools........................................ Bosch, Dewalt and Milwaukee
Light Towers.......................................... Specialty Lighting, Coleman and Ingersoll - Rand
Forklifts............................................. Lull, Gradall, Toyota and Clark
Trucking.............................................. International, Ford and GMC
Aerial................................................ JLG, Genie Industries, and Snorkel
Concrete.............................................. Partner, Edco, Whiteman, Miller,
MultiQuip, Wacker
and Stone
Hydraulic Hammers..................................... Kent and Tramac
Locations
Our locations typically include (1) offices for sales, administration and
management; (2) a customer showroom displaying equipment and parts; (3) an
equipment service area; and (4) outdoor and indoor storage facilities for
equipment. Each location offers a full range of rental equipment, with the mix
of equipment available designed to meet the anticipated needs of the customers
in each location.
Each location is staffed by, on average, 15 full-time employees, including
a branch manager, a rental coordinator, service manager, sales representatives,
an office administrator, mechanics and drivers. Additional part-time employees
are also used as necessary.
Competition
The equipment rental industry is highly fragmented and very competitive. We
compete with independent third parties in all of the markets in which we
operate. Most of our competitors in the rental business tend to operate in
specific, limited geographic areas, although some larger competitors compete on
a national basis. We also compete with equipment manufacturers which sell and
rent equipment directly to customers. Some of our competitors have greater
financial resources and name recognition than we have. These larger competitors
may have the ability to set market rates for rental equipment in certain
geographic areas in which we operate. If competitive pressure forces us to lower
our rental rates, this could reduce our rental revenues and materially adversely
affect our financial condition or results of operations.
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Environmental and Safety Regulation
Our facilities and operations are subject to certain federal, state and
local laws and regulations relating to environmental protection and occupational
health and safety, including those governing wastewater discharges, the
treatment, storage and disposal of solid and hazardous wastes and materials, and
the remediation of contamination associated with the release of hazardous
substances. We believe that we are in compliance with such requirements and do
not currently anticipate making any material capital expenditures or incurring
material costs for environmental compliance or remediation for the current or
succeeding fiscal years.
Employees
As of February 25, 2001, we had approximately 1,130 employees. None of our
employees are represented by a union or covered by a collective bargaining
agreement. We believe our relations with our employees are good.
RISK FACTORS
These are not the only risks and uncertainties we face. The following
important factors, among others, could adversely impact our business, operating
results, financial condition and cash flows. These factors could cause our
actual results to differ materially from those projected in any forward-looking
statements made in this Annual Report on Form 10-K or presented elsewhere by
management from time to time.
We are dependent on additional capital for future growth.
Although we believe that we have sufficient funds for working capital, we
may need to raise additional funds in the future if we need to respond to
competitive pressures or decide to accelerate our growth rate by increasing our
rental equipment fleet, opening more start-up locations or making additional
acquisitions. Our ability to obtain additional financing will be subject to a
number of factors, including market conditions, our operating performance and
the terms of our existing indebtedness. We cannot assure you that we will be
able to raise additional funds on terms acceptable to us, or at all. If we raise
additional funds through the sale of equity or convertible debt securities, your
ownership percentage of our common stock will be reduced. In addition, these
transactions may dilute the value of our common stock. We may have to issue
securities that have rights, preferences and privileges senior to our common
stock. The terms of any additional indebtedness may include restrictive
financial and operating covenants that would limit our ability to compete and
expand. Our failure to obtain any required future financing on terms acceptable
to us could materially and adversely effect our financial condition.
We have a substantial amount of debt.
As of February 28, 2001, we had total indebtedness of approximately $344.1
million. The degree to which Neff is leveraged could have important consequences
to holders of our common stock including, but not limited to:
o our leverage may limit our ability to obtain additional
financing in the future for working capital, capital
expenditures, acquisitions or general corporate or other
purposes;
o a substantial portion of our cash flow from operations will be
dedicated to the payment of the principal of, and interest on,
our indebtedness; and
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o our substantial leverage may make us more vulnerable to
economic downturns, limit our ability to withstand
competitive pressures and reduce our flexibility to respond to
changing business and economic conditions.
The terms of our current indebtedness restrict our operations.
Our ability to finance future acquisitions, start-ups and internal growth
is limited by the covenants contained in our $219.5 million revolving credit
facility and in the indentures governing $200 million in subordinated debt
securities that we issued and sold in 1998. These covenants restrict our
ability, among other things to:
o dispose of assets
o engage in mergers or consolidations;
o incur debt;
o pay dividends;
o repurchase our capital stock;
o create liens on our assets;
o make capital expenditures;
o make investments or acquisitions; and
o engage in transactions with our affiliates.
Our credit facility also requires us to maintain specified financial
ratios, including minimum cash flow levels and interest coverage. These
covenants may significantly limit our ability to respond to changing business
and economic conditions and to secure additional financing, and we may be
prevented from engaging in transactions, including acquisitions, that might be
considered important to our business strategy or otherwise beneficial to us.
Our ability to comply with the restrictive covenants in our credit facility
and the indentures may be affected by events that are beyond our control. The
breach of any of these covenants could result in a default under the credit
facility or the indentures. In the event of a default under the credit facility,
our lenders could declare all amounts borrowed under the credit facility,
together with accrued interest and other fees, to be due and payable. In the
event of a default under the indentures, the trustee under each indenture or the
holders of our senior subordinated notes may declare the principal of and
accrued interest on the notes to be due and payable. We cannot assure you that
we would be able to repay all amounts due under the credit facility or the
indentures in the event these amounts are declared due upon a breach of the
credit facility of the indentures.
We are currently in default under the consolidated interest coverage ratio
and leverage ratio covenants under the credit facility. Our lenders have waived
these defaults until May 23, 2001. We are in negotiations with our lenders to
amend the financial covenants in the credit facility and permanently cure the
defaults.
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Our quarterly and annual operating results may fluctuate and the price of
our common stock may change in response to those fluctuations.
Our quarterly and annual revenues and operating results have varied in the
past and may continue to fluctuate in the future depending on factors such as:
o general economic conditions in our markets;
o changes in our, and our competitors' pricing;
o the timing of start-up locations and acquisitions and related
costs;
o the effectiveness of efforts to integrate start-up locations
and acquired businesses with existing operations;
o rental patterns of our customers; and
o increased competition.
In addition, equipment rental businesses often experience a slowdown in
demand during the winter months when adverse weather conditions affect
construction activity. Due to these and other factors, we believe that
quarter-to-quarter comparisons of our operating results may not be meaningful.
You should not rely on our results for any one quarter as an indication of our
future performance. In future periods, our operating results may fall below the
expectations of public market analysts or investors. If this occurs, the price
of our common stock is likely to decrease.
We face intense competition.
If we are unable to compete successfully, we will lose market share and our
business will suffer. The equipment rental industry is highly competitive. Our
competitors include large national rental companies, regional competitors that
operate in one or more states, smaller independent businesses with one or two
rental locations, and equipment vendors and dealers who both sell and rent
equipment to customers. Some of our competitors have greater financial
resources, are more geographically diverse, and have greater name recognition
than we do. If existing or future competitors reduce prices and we must also
reduce prices to remain competitive, our operating results would be adversely
affected. In addition, other equipment rental companies may compete with us for
acquisition candidates or start-up locations, which may increase acquisition
prices and reduce the number of suitable acquisition candidates or expansion
locations.
We depend on our senior management.
Neff is managed by a small number of key executive officers. The loss of
the services of these key executives could have a material adverse effect on our
business. We do not maintain any key man life insurance policies on any of our
officers. Our success also depends on our ability to hire and retain qualified
management personnel. We cannot assure you that we will be able to hire and
retain the personnel we need.
Any acquisitions we make could disrupt our business, increase our expenses
and adversely affect our financial condition or operations.
In the future, we may make material acquisitions of, or large investments
in, other equipment rental businesses. We cannot assure you that we would
successfully integrate any businesses or personnel that we might acquire with
our existing operations. Any future acquisitions or investments we might make
would present risks commonly associated with these types of transactions,
including:
o difficulty in combining the operations or work force of an
acquired business;
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o potential loss of key personnel of an acquired business;
o disruptions of our on-going business;
o difficulty in maintaining uniform standards, controls,
procedures and policies;
o potential negative impact on results of operations due to
amortization of goodwill, other intangible assets acquired
or assumption of liabilities;
o risks associated with entering markets with which we have
limited previous experience; and
o diversion of management attention.
We expect that future acquisitions, if any, could provide for consideration
to be paid in cash, shares of our common stock, or a combination of cash and
common stock. Additional equity issued in connection with future acquisitions
could result in dilution of our stockholders' equity interest. Fluctuations in
our stock price may make acquisitions more expensive or prevent us from being
able to complete acquisitions on terms that are acceptable to us.
We may incur substantial costs in order to comply with environmental and
safety regulations.
We are subject to certain federal, state and local laws and regulations
relating to environmental protection and occupational health and safety,
including those governing:
o wastewater discharges;
o the treatment, storage and disposal of solid and hazardous
wastes and materials; and
o the remediation of contamination associated with the
release of hazardous substances.
These laws often impose liability without regard to whether the owner or
lessee of real estate knew of, or was responsible for, the presence of hazardous
or toxic substances. Some of our present and former facilities have used
substances and generated or disposed of wastes which are or may be considered
hazardous, and we may incur liability in connection with these activities.
Although we investigate each business or property that we acquire or lease,
these businesses or properties may have undiscovered potential liabilities
relating to non-compliance with environmental laws and regulations that we will
be required to investigate and/or remediate. While we do not currently expect to
make any material capital expenditures for environmental compliance or
remediation in the foreseeable future, we cannot assure you that environmental
and safety requirements will not become more stringent or be interpreted and
applied more stringently in the future, which could cause us to incur additional
environmental compliance or remediation costs. These compliance and remediation
costs could materially adversely affect our financial condition or results of
operations.
We may be liable for claims that our insurance will not cover.
Our business exposes us to possible claims for personal injury or death
resulting from the use of equipment that we rented or sold and from injuries
caused in motor vehicle accidents in which our delivery and service personnel
are involved. We carry comprehensive insurance subject to a deductible at a
level management believes is sufficient to cover existing and future claims. We
cannot assure you that existing or future claims will not exceed the level of
our insurance or that such insurance will continue to be available on
economically reasonable terms, or at all. In addition, our insurance may not
cover claims for punitive damages or for damages arising from intentional
misconduct.
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The market price for our common stock may fluctuate widely.
The trading price for our common stock has been and may continue to be
highly volatile. The market price of our common stock could fluctuate
substantially due to factors, many of which are beyond our control, such as:
o actual or anticipated variations in our quarterly results
of operations;
o additions or departures of key personnel;
o announcements of acquisitions, new products or new services
by us or our competitors;
o changes in earnings estimates or recommendations by securities
analysts;
o changes in business or regulatory conditions affecting us;
o changes in the market valuations of other equipment rental
companies;
o trading of our common stock; and
o general market conditions.
Our principal stockholders have substantial control over our affairs.
Neff is controlled by the Mas family and General Electric Capital
Corporation ("GE Capital"). Jorge Mas, our Chairman, his brothers, Juan Carlos
Mas and Jose Ramon Mas, who are also members of our board of directors, and
Santos Fund I, L.P. ("Santos"), a limited partnership controlled by the Mas
family beneficially own approximately 44.9% of our common stock. In addition, GE
Capital owns Class B Special common stock that represents 24.1% of the
outstanding equity of Neff. Neff, GE Capital, Santos and the Mas family have
entered into a Stockholders' Agreement. The agreement provides that if GE
Capital transfers common stock representing 15% or more of the equity of Neff to
a third party, the parties to the agreement will cause Neff's Board of Directors
to increase by one member and will cause the nominee designated by the purchaser
of GE Capital's common stock to be elected as the additional director.
The Mas family, Santos and GE Capital, or a transferee who acquires the
common stock held by GE Capital, acting together will have the ability to exert
substantial influence over all matters requiring approval by our stockholders.
These matters include the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. In addition,
they may dictate the management of our business and affairs. This concentration
of ownership could have the effect of delaying, deferring or preventing a change
in control or impeding a merger or consolidation, takeover or other business
combination which you, as a stockholder, may otherwise view favorably.
Future sales of our common stock may adversely affect our common stock price.
If our stockholders sell a large number of shares of common stock or if we
issue a large number of shares in connection with future acquisitions or
financings, the market price of our common stock could decline significantly. In
addition, the perception in the public market that our stockholders might sell a
large number of shares of common stock could cause a decline in the market price
of our common stock. An additional 1.5 million shares of our common stock may be
issued upon the exercise of vested stock options we have previously granted, all
of which could be sold in the public market if issued, subject to compliance
with Rule 144 of the Securities Act in the case of shares held by our
affiliates.
13
ITEM 2. PROPERTIES
We lease approximately 18,000 square feet for our corporate headquarters in
an office building in Miami, Florida. We own the buildings and/or the land at 2
of our locations. All other sites are leased, generally for terms of five years
with renewal options. Owned and leased sites range from approximately 7,000 to
25,000 square feet on lots ranging up to 22 acres, and include showrooms,
equipment service areas and storage facilities. We do not consider any specific
leased location to be material to our operations. We believe that equally
suitable alternative locations are available in all areas where we currently do
business.
ITEM 3. LEGAL PROCEEDINGS
Neff, the members of our Board of Directors, two of our principal
stockholders and United Rentals, Inc. ("United") are defendants in at least nine
lawsuits filed in the Delaware Court of Chancery. Five of the suits were filed
on January 3, 2001, two were filed on January 4, 2001 and two were filed on
January 5, 2001. All of the suits were filed after Neff announced that it had
received a proposal from United to acquire all of the outstanding shares of our
Class A common stock held by the public. The plaintiffs in the suits are
stockholders of Neff who purport to bring the suits as class actions on behalf
of all persons, other than the defendants, who own our Class A common stock. The
complaints allege, among other things, that certain members of the Board of
Directors, General Electric Capital Corporation and Santos Fund I ,L.P. have
breached their fiduciary duties to our public shareholders and engaged in
self-dealing in negotiating the terms of the United proposal. The plaintiffs
seek, among other things, injunctive relief and damages. Neff has not yet
responded to the complaints. On February 26, 2001, Neff announced that the
United proposal had expired and negotiations with United had terminated.
On December 17, 1999, we completed the sale of Neff Machinery, Inc.
("Machinery"), a wholly-owned subsidiary of Neff. Neff received $90.5 million
and recorded a gain on the sale of $3.8 million. The Machinery sale agreement
(the "Agreement") provides for a post-closing purchase price adjustment based on
the difference between the net worth of Machinery as of June 30, 1999 (the date
of a pro forma balance sheet prepared in advance of the execution of the
Agreement) and the closing date (on the basis of a balance sheet prepared after
closing). Neff takes the position that this provision was designed in general to
provide an upward adjustment in the purchase price based on any increase in
Machinery's retained earnings during the period from June 30, 1999 to the
closing date.
Following preparation of a closing date balance sheet, the purchaser told
Neff that Neff owed the purchasers an adjustment payment of $20.3 million. Neff
responded by informing the purchaser that the purchaser owed it additional
consideration of $8.8 million. In its response, Neff noted that Machinery had
been profitable during the period between June 30, 1999 and the closing date. In
fact, a significant portion of the additional consideration Neff claimed it was
owed is attributable to Machinery's earnings during this period. Neff believes
that the difference between its position and the purchaser is generally the
result of a difference in contract interpretation. Neff's position is that the
Agreement requires all of Machinery's assets and liabilities to be valued, for
purposes of the closing date balance sheet, using the same standards used to
prepare the June 30, 1999 pro forma balance sheet. The purchaser's position is
that the Agreement allows many of Machinery's assets and liabilities to be
valued, for purposes of the closing date balance sheet, at the lower of book
value or market, irrespective of the valuation standards used to prepare the
June 30, 1999 pro forma balance sheet.
14
The largest monetary dispute concerns Machinery's rental fleet. The book
value (cost less accumulated depreciation) of the rental fleet as of the closing
was approximately $50.5 million. The gross book value of the rental fleet was
approximately $63.7 million. Neff's position is that Machinery's rental fleet
should be measured on the closing date balance sheet at its book value,
consistent with Neff's historical financial statements and the June 30, 1999 pro
forma balance sheet. The purchaser argues that Machinery's rental fleet as of
the closing date should be measured at the lower of book value and market, which
the purchaser maintains is approximately $14.6 million lower than Neff's
valuation of the rental fleet under accounting principles generally accepted in
the United States of America ("GAAP"). Neff also disputes the market values
assigned by the purchaser to the rental fleet.
The next largest item in dispute between Neff and the purchaser relates to
the treatment of floor plan financing programs with equipment manufacturers. The
purchaser assumed approximately $3 million of floor plan liabilities as of the
closing and included those liabilities on the closing date balance sheet
prepared by the purchaser. Floor plan financing was not included on the June 30,
1999 pro forma balance sheet. As of June 30, 1999, the amount of the floor plan
financing was approximately $6 million.
Neff maintains that this debt was erroneously omitted from the June 30,
1999 pro forma balance sheet and maintains that the June 30, 1999 pro forma
balance sheet should be corrected accordingly. The purchaser opposes this
adjustment on the grounds that the Agreement does not expressly contemplate
adjustments to the pro forma balance sheet. The purchaser also maintains that
floor plan financing was properly omitted from the June 30, 1999 pro forma
balance sheet.
The balance of the difference between Neff's and the purchaser's claims
relates to the following items: (1) The closing date balance sheet prepared by
the purchaser includes a reserve for bad debt as of the closing date. Neff
maintains that the magnitude of the purchaser's proposed bad debt reserve is
higher than appropriate under GAAP. The difference between Neff's position on
the issue and the purchaser's position is approximately $2.4 million; (2) The
purchaser contends that Machinery's real estate should be valued on the closing
date balance sheet at the lower of book value or market. Neff maintains that,
under GAAP, Machinery's real estate should be stated at book value unless assets
are impaired, in which case the assets should be written down to fair market
value. Neff further maintains that the assets are not impaired. The difference
between the Neff's position on this issue and the purchaser's position is
approximately $2.3 million; and (3) The purchaser has written down a portion of
Machinery's parts inventory for parts it claims are inactive or are obsolete.
Neff maintains that the write down is inappropriate because the parts are
included on the "active" parts inventory lists of their respective manufacturers
as of December 31, 1999, and are required in many cases to be stocked pursuant
to agreements with those manufacturers. The difference between Neff's position
on this issue and the purchaser's position is approximately $2.1 million.
On May 5, 2000, Neff filed suit in Florida state court, seeking, inter
alia, a declaration that the Agreement as written requires that the inventory be
valued as of the closing in accordance with GAAP applied on a basis consistent
with Neff's historical financial statements and the June 30,1999 pro forma
balance sheet. In the alternative, Neff sought to have the Agreement reformed to
so require. Neff Corp. v. Nortrax Equipment Co. - Southeast, L.L.C., Case No.
00-11524 CA01 (Circuit Court of the 11th Judicial Circuit in and for Miami-Dade
County, Florida). On or about May 25, 2000, the purchaser filed a motion to stay
the litigation and compel arbitration. The parties recently filed a stipulation
in which they have agreed that all disputes pertaining to the closing balance
sheet and the June 30, 1999 pro forma balance sheet will be resolved by an
internationally recognized firm of independent public accountants ( the
"Accounting Firm") to be selected by the parties. The Accounting Firm will,
acting as arbitrators in accordance with the Federal Arbitration Act and the
terms of the Agreement, determine whether and to what extent the closing net
asset value of Machinery derived from the closing balance sheet requires
adjustment and whether the Agreement and the June 30,1999 pro forma balance
sheet should be reformed. Pursuant to the Agreement, the Accounting Firm shall
refer to a nationally recognized firm of personal property appraisers selected
by the parties, or to a real estate appraiser selected by the parties, those
items, if any, that it determines are to be valued at market.
15
We are also a party to pending legal proceedings arising in the ordinary
course of business. While the results of such proceedings cannot be predicted
with certainty, we do not believe any of these matters are material to our
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
During the fourth quarter of 2000, no matter was submitted to a vote of the
security holders of Neff.
16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
On May 21, 1998, our Class A common stock began trading on the New York
Stock Exchange under the symbol "NFF". The following table sets forth the high
and low closing sales prices of our Class A common stock as reported on New York
Stock Exchange for the periods indicated.
Year ended December 31, 2000:
HIGH LOW
------- -------
First Quarter ........... $ 9.38 $ 5.94
Second Quarter ........... $ 7.31 $ 3.00
Third Quarter ........... $ 5.50 $ 2.94
Fourth Quarter ........... $ 4.25 $ 0.75
Year ended December 31, 1999:
HIGH LOW
------- -------
First Quarter ........... $ 8.00 $ 5.56
Second Quarter ........... $ 15.75 $ 6.44
Third Quarter ........... $ 18.44 $ 10.25
Fourth Quarter ........... $ 12.75 $ 6.25
As of March 1, 2001, we had 75 shareholders of record. We believe the
number of beneficial owners is substantially greater than the number of record
holders because a large portion of our Class A common stock is held of record in
broker "street names" for the benefit of individual investors.
Dividend Policy
We have not paid any cash dividends on our common stock during the two-year
period ended December 31, 2000. We presently intend to retain all earnings for
the development of our business and do not anticipate paying any cash dividends
on our common stock in the foreseeable future. In addition, our revolving credit
agreement precludes us from purchasing, redeeming or retiring any of our capital
stock or from paying dividends. The payment of dividends is also limited by
provisions of the indentures governing our senior subordinated notes issued in
May and December 1998 and due in 2008.
The declaration and payment of any future cash dividends will depend on a
number of factors including future earnings, capital requirements, our financial
condition and prospects and any restrictions under credit or other agreements
existing from time to time, as well as any other factors as our Board of
Directors may deem relevant. We cannot assure you that we will pay any dividends
in the future.
17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The data set forth below should be read in conjunction with Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Neff's Consolidated Financial Statements and the Notes thereto
included elsewhere in this Annual Report. Certain amounts in the prior years
have been reclassified to conform with the current year presentation.
For the Years Ended December 31,
-----------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Amounts in thousands, except per share data)
Revenues
Rental revenue ........................ $ 192,990 $ 222,862 $ 179,014 $ 69,512 $ 35,808
Equipment sales ....................... 51,179 121,865 108,352 50,578 44,160
Parts and service ..................... 15,923 47,284 36,724 22,132 15,045
---------- ---------- ---------- ---------- ----------
Total revenues ................... 260,092 392,011 324,090 142,222 95,013
---------- ---------- ---------- ---------- ----------
Cost of revenues
Cost of equipment sold ................ 43,660 100,871 83,783 40,766 33,605
Depreciation of rental equipment ...... 44,724 55,159 56,336 24,231 19,853
Maintenance of rental equipment ....... 64,883 66,763 49,858 18,752 8,092
Cost of parts and service ............. 10,495 30,166 23,690 13,741 8,143
---------- ---------- ----------- ---------- ----------
Total cost of revenues ........... 163,762 252,959 213,667 97,490 69,693
---------- ---------- ----------- ---------- ----------
Gross profit .................................. 96,330 139,052 110,423 44,732 25,320
---------- ---------- ----------- ---------- ----------
Selling, general and administrative expenses .. 61,574 74,893 60,347 31,329 18,478
Other depreciation and amortization ........... 9,884 10,731 8,833 2,806 1,432
Write-down of assets held for sale ............ 4,272 1,444 - - -
Cost incurred in efforts to sell the company .. 4,282 - - - -
Officer stock option compensation (2) ......... - - 3,198 4,400 -
---------- ---------- ----------- ---------- ----------
Income from operations ........................ 16,318 51,984 38,045 6,197 5,410
---------- ---------- ----------- ---------- ----------
Other expenses ................................ 34,763 41,520 35,855 14,338 6,337
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes, minority
interest and extraordinary item .......... (18,445) 10,464 2,190 (8,141) (927)
(Provision for) benefit from income taxes ..... - (3,877) 134 1,748 (461)
---------- ---------- ----------- ---------- ----------
Income (loss) before minority interest and
extraordinary item ........................... (18,445) 6,587 2,324 (6,393) (1,388)
Minority Interest ............................. - (1,733) (1,111) - -
----------- ----------- ----------- ---------- ----------
Income (loss) before extraordinary item ....... (18,445) 4,854 1,213 (6,393) (1,388)
Extraordinary loss, net ....................... - - (2,675) (451) (809)
----------- ----------- ----------- ---------- ----------
Net income (loss) ............................. $ (18,445) $ 4,854 $ (1,462) $ (6,844) $ (2,197)
=========== =========== =========== ========== ==========
Basic income (loss) per common share:
Income (loss) before extraordinary item ....... $ (0.87) $ 0.23 $ (0.23) $ (1.64) $ (0.56)
Extraordinary loss, net ....................... - - (0.15) (0.05) (0.10)
----------- ----------- ----------- ---------- ----------
Net Income (loss) ............................. $ (0.87) $ 0.23 $ (0.38) $ (1.69) $ (0.66)
=========== =========== =========== ========== ==========
Diluted income (loss) per common share:
Income (loss) before extraordinary item ....... $ (0.87) $ 0.22 $ (0.23) $ (1.64) $ (0.56)
Extraordinary loss, net ....................... - - (0.15) (0.05) (0.10)
----------- ----------- ----------- ---------- ----------
Net income (loss) ............................. $ (0.87) $ 0.22 $ (0.38) $ (1.69) $ (0.66)
=========== =========== =========== ========== ==========
Weighted average common shares outstanding:
Basic ......................................... 21,165 21,165 17,213 8,465 8,465
=========== =========== =========== ========== ==========
Diluted ....................................... 21,165 21,887 17,213 8,465 8,465
=========== =========== =========== ========== ==========
18
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA - (continued)
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Amounts in thousands, except percent and location data)
Balance Sheet Data (end of period):
Net book value of rental equipment.......... $ 303,863 $ 285,863 $ 321,220 $ 179,547 $ 76,794
Total assets................................ 474,967 471,706 572,369 279,654 109,118
Total debt ................................. 345,939 335,852 406,993 226,203 58,250
Redeemable preferred stock ................. - - - 53, 747 46,299
Total stockholders' equity (deficit) ....... 85,763 104,208 99,360 (24,735) (7,508)
Other Data:
EBITDA(3) .................................. $ 79,480 $ 119,318 $ 106,412 $ 37,634 $ 26,695
EBITDA margin(4) ........................... 30.6% 30.4% 32.8% 26.5% 28.1%
Rental equipment purchases ................. $ 109,578 $ 221,671 $ 199,198 $ 143,515 $ 86,886
Number of locations (end of period)......... 82 84 86 53 16
_____________________
1) Depreciation of rental equipment for 1996, 1997 and 1999 reflects Neff's
change in depreciation policy to recognize extended estimated service lives and
increased residual values of our rental equipment. See Neff's Consolidated
Financial Statements and the Notes thereto included elsewhere in this Annual
Report.
2) Officer stock option compensation expense represents a non-cash charge with
respect to the changes in the difference between the estimated market value of
the shares to be issued to a former executive officer under an option agreement,
and the exercise price for the shares.
3) EBITDA represents income from operations plus depreciation, amortization, and
non-cash expenditures, including write-down of assets in 2000 and 1999, officer
stock option compensation expense in 1998 and 1997, and costs incurred in
efforts to sell the Company in 2000. EBITDA is not intended to represent cash
flow from operations and should not be considered as an alternative to operating
or net income computed in accordance with GAAP, as an indicator of Neff's
operating performance, as an alternative to cash flows from operating activities
(as determined in accordance with GAAP) or as a measure of liquidity. We believe
that EBITDA is a fairly standard measure in our industry, commonly reported and
widely used by analysts and investors as a measure of profitability for
companies with significant depreciation, amortization and non-cash expenditures.
However, not all companies calculate EBITDA using the same methods; therefore,
the EBITDA figures set forth above may not be comparable to EBITDA reported by
other companies.
4) EBITDA margin represents EBITDA as a percentage of total revenues.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis compares the year ended December 31,
2000 to historical and pro forma results for the year ended December 31, 1999
and the year ended December 31, 1999 to the year ended December 31, 1998. This
discussion should be read in conjunction with Neff's Consolidated Financial
Statements and the Notes thereto, appearing elsewhere in this Annual Report.
Overview
We derive revenue from (1) the rental of equipment; (2) sales of new and
used equipment and (3) sales of parts and service. Our primary source of revenue
is the rental of equipment to construction and industrial customers. Growth in
rental revenue is dependent upon several factors, including the demand for
rental equipment, the amount of equipment available for rent, rental rates and
the general economic environment. The level of new and used equipment sales is
primarily a function of the supply and demand for such equipment, price and
general economic conditions. The age, quality and mix of our rental fleet also
affect revenues from the sale of used equipment. Revenues derived from the sale
of parts and service generally correlates with sales of new equipment.
As part of our strategy to improve utilization and return on fleet
investments, we plan to reduce our short term capital expenditures on fleet
assets during 2001 in order to apply operating cash flow to pay down debt. The
reduction in capital expenditures could lead to a reduction in used equipment
sales as we age the fleet and seek to maximize return on existing fleet
investments. We will also continue to carefully analyze the market potential of
each branch and may contemplate the closing of branches that are not generating
adequate return on investment or are in a market that we do not believe has
significant future potential.
Costs of revenues include cost of equipment sold, depreciation and
maintenance costs of rental equipment and cost of parts and service. Cost of
equipment sold consists of the net book value of rental equipment at the time of
sale and cost for new equipment sales. Depreciation of rental equipment
represents the depreciation costs attributable to rental equipment. Maintenance
of rental equipment represents the costs of servicing and maintaining rental
equipment on an ongoing basis. Cost of parts and service represents costs
attributable to the sale of parts directly to customers and service provided for
the repair of customer owned equipment.
Depreciation of rental equipment is calculated on a straight-line basis
over the estimated service life of the asset (generally two to eight years with
a 20% residual value). Since January 1, 1996, we have, from time to time, made
certain changes to our depreciation assumptions to recognize extended estimated
service lives and increased residual values of our rental equipment. We believe
that these changes in estimates will more appropriately reflect our financial
results by better allocating the cost of our rental equipment over the service
lives of these assets. In addition, the new lives and residual values more
closely conform to those prevalent in the industry.
Selling, general and administrative expenses include sales and marketing
expenses, payroll and related costs, professional fees, property and other taxes
and other administrative overhead. Other depreciation and amortization
represents the depreciation associated with property and equipment (other than
rental equipment) and the amortization of goodwill and intangible assets.
20
Results of Operations
Management believes that the period-to-period comparisons of Neff's
financial results may not necessarily be meaningful and should not be relied
upon as an indication of future performance. In addition, our results of
operations may fluctuate from period-to-period in the future as a result of the
cyclical nature of the industry in which we operate.
Sale of Subsidiaries. During the fourth quarter of 1999, we sold our equity
interest in two subsidiaries, Sullair Argentina Sociedad Anonima ("S.A.
Argentina") and Neff Machinery, Inc. ("Machinery"). Our pro forma results for
the Company for 1999, assuming the sales of S.A. Argentina and Machinery took
place on January 1, 1999, are presented below with the other years presented for
comparative purposes.
The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of Neff, and pro forma
results for 1999, expressed as a percentage of total revenues. We cannot assure
you that the trends in the table below will continue in the future.
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except percent data)
For the Years Ended December 31,
--------------------------------------------------------------------------------
Historical Pro Forma Historical
2000 % 1999 % 1999 % 1998 %
--------- ---- --------- ---- --------- ---- --------- ----
Revenues
Rental revenue ............................ $ 192,990 74.2 $ 222,862 56.9 $ 179,062 72.0 $ 179,014 55.2
Equipment sales ........................... 51,179 19.7 121,865 31.1 54,234 21.8 108,352 33.5
Parts and service ......................... 15,923 6.1 47,284 12.0 15,257 6.2 36,724 11.3
--------- ---- --------- ---- --------- ---- --------- ----
Total revenues ....................... 260,092 100.0 392,011 100.0 248,553 100.0 324,090 100.0
--------- ---- --------- ---- --------- ---- --------- ----
Cost of revenues
Cost of equipment sold .................... 43,660 16.8 100,871 25.7 45,086 18.1 83,783 25.9
Depreciation of rental equipment .......... 44,724 17.2 55,159 14.1 40,821 16.4 56,336 17.4
Maintenance of rental equipment ........... 64,883 25.0 66,763 17.0 56,556 22.8 49,858 15.3
Cost of parts and service ................. 10,495 4.0 30,166 7.7 8,745 3.5 23,690 7.3
--------- ---- --------- ---- --------- ---- --------- ----
Total cost of revenues ............... 163,762 63.0 252,959 64.5 151,208 60.8 213,667 65.9
--------- ---- --------- ---- --------- ---- --------- ----
Gross profit ................................. 96,330 37.0 139,052 35.5 97,345 39.2 110,423 34.1
--------- ---- --------- ---- --------- ---- --------- ----
Other operating expenses
Selling, general and administrative expenses 61,574 23.7 74,893 19.1 56,555 22.8 60,347 18.6
Other depreciation and amortization ....... 9,884 3.8 10,731 2.7 8,707 3.5 8,833 2.7
Write-down of asset held for sale ......... 4,272 1.7 1,444 0.4 1,444 0.6 - -
Costs incurred in efforts to sell the
Company ................................... 4,282 1.7 - - - - - -
Officer stock option compensation ......... - - - - - - 3,198 1.0
--------- ---- --------- ---- --------- ---- --------- ----
Income from operations ....................... $ 16,318 6.3 $ 51,984 13.3 $ 30,639 12.3 $ 38,045 11.7
--------- ---- --------- ---- --------- ---- --------- ----
EBITDA ........................................ $ 79,480 30.6 $ 119,318 30.4 $ 81,611 32.8 $ 106,412 32.8
========= ==== ========= ==== ========= ==== ========= ====
Certain amounts for the prior periods have been reclassified to conform with the current period presentation.
21
2000 Compared to 1999 (in thousands, except percent data)
This section compares current year operating results with both our
historical operating results for 1999 and with pro forma operating results for
1999. The pro forma operating results of 1999 exclude the operations of two of
the Company's subsidiaries, S.A. Argentina and Machinery, which were sold in the
fourth quarter of 1999. Pro forma operating results assume that the sales of
S.A. Argentina and Machinery occurred on January 1, 1999.
Total Revenues. Total revenues for 2000 decreased 33.7% to $260,092 from
$392,011 in 1999. This decrease in revenues is primarily attributable to the
sales of S.A. Argentina and Machinery.
Pro Forma Total Revenues. Total revenues for the year ended December 31,
2000 increased 4.6% to $260,092 from $248,553 for the year ended December 31,
1999. The increase in total revenues is partly due to an increase of $13,928 or
7.8% in rental revenues resulting from the continued expansion of our rental
fleet at existing locations. The increase in total revenues was mitigated by a
$3,055 or 5.6% decrease in sales of rental equipment during the year ended
December 31, 2000 compared with the year ended December 31, 1999. Total revenues
at locations open for more than one year increased 7.2% for the year ended
December 31, 2000 compared with the year ended December 31, 1999.
Gross Profit. Gross profit for 2000 decreased 30.7% to $96,330 or 37.0% of
total revenues from $139,052 or 35.5% of total revenues in 1999. This decrease
is primarily attributable to the sales of S.A. Argentina and Machinery.
Pro Forma Gross Profit. Gross profit for the year ended December 31, 2000
decreased 1.0% to $96,330 or 37.0% of total revenues from $97,345 or 39.2% of
total revenues for the year ended December 31, 1999. The decrease in gross
profit is primarily due to a decrease in gross profit margin resulting from
decreases in rental rates in response to competitive pressures during 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 2000 decreased 17.8% to $61,574 or 23.7% of total
revenues from $74,893 or 19.1% of total revenues in 1999. The decrease in
selling, general and administrative expenses is primarily attributable to the
sales of S.A. Argentina and Machinery.
Pro Forma Selling, General and Administrative Expenses. Selling, general
and administrative expenses for the year ended December 31, 2000 increased 8.9%
to $61,574 or 23.7% of total revenues from $56,555 or 22.8% of total revenues
for the year ended December 31, 1999. The increase in selling, general and
administrative expenses is primarily attributable to the allocation of increased
resources to support the continued expansion of our rental fleet at existing
locations.
Depreciation of Rental Equipment. Depreciation of rental equipment for 2000
decreased 18.9% to $44,724 or 17.2% of total revenues from $55,159 or 14.1% of
total revenues in 1999. The decrease was primarily due to the sales of S.A.
Argentina and Machinery.
Pro Forma Depreciation of Rental Equipment. Depreciation of rental
equipment for 2000 increased 9.6% to $44,724 or 17.2% of total revenues from
$40,821 or 16.4% of total revenues in 1999. The increase is due primarily to
increased investments in rental fleet at existing locations.
22
Other Depreciation and Amortization. Other depreciation and amortization
expense for 2000 decreased 7.9% to $9,884 or 3.8% of total revenues from $10,731
or 2.7% of total revenues in 1999. This decrease is primarily attributable to
the sales of S.A. Argentina and Machinery.
Pro Forma Other Depreciation and Amortization. Other depreciation and
amortization expense for the year ended December 31, 2000 increased 13.5% to
$9,884 or 3.8% of total revenues from $8,707 or 3.5% of total revenues for the
year ended December 31, 1999. The increase is due to increased investment in
non-rental equipment during the year 2000.
Interest Expense. Interest expense for 2000 decreased 16.2% to $33,456 from
$39,901 in 1999. This decrease is primarily attributable to the paydown of debt
with the proceeds of the sales of S.A. Argentina and Machinery.
Pro Forma Interest Expense. Interest expense for the year ended December
31, 2000 increased 17.4% to $33,456 from $28,508 for the year ended December 31,
1999. The increase is primarily attributable to increased borrowings to finance
the expansion of our rental fleet assets at existing locations and rate
increases on Neff's revolving credit facility.
Write-Down of Assets Held for Sale. Write-down of assets held for sale
represents a charge of $4,275 to write-down fleet assets primarily utilized by
the oil industry to estimated fair value during the second quarter of 2000. A
write-down of similar assets held for sale of $1, 444 was recorded during 1999.
Cost Incurred in Efforts to Sell the Company. We recorded a charge of
$4,282 during 2000 to record expenses related to consulting and legal fees
associated with efforts to sell Neff during 1999 and 2000.
1999 Compared to 1998 (in thousands, except percent data)
Total Revenues. Total revenues for 1999 increased 21.0% to $392,011 from
$324,090 in 1998. This growth in revenues was primarily attributable to revenues
generated by acquisitions.
Gross Profit. Gross profit for 1999 increased 26.0% to $139,052 or 35.5% of
total revenues from $110,423 or 34.1% of total revenues in 1998. This increase
was primarily attributable to an increase in gross profit of approximately $13.1
million associated with the growth in revenues arising from acquisitions and
approximately $12.9 million associated with the maturation of new rental
locations opened since March 1995. The increase in gross profit as a percentage
of revenue was primarily attributable to improved rental revenue margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1999 increased 24.1% to $74,893 or 19.1% of total
revenues from $60,347 or 18.6% of total revenues in 1998. The increase in
selling, general and administrative expenses was primarily attributable to the
increased regional and corporate personnel to support our continued revenue
growth.
Depreciation of Rental Equipment. Depreciation of rental equipment for 1999
decreased 2.1% to $55,159 or 14.1% of total revenues from $56,336 or 17.4% of
total revenues in 1998. The decrease was primarily due to a change in accounting
estimates relating to depreciation of rental equipment, offset by increased
investment in rental equipment by Neff during the year, prior to the sales of
Machinery and S.A. Argentina. The changes in estimates made in 1999 reduced
depreciation of rental equipment by $16,900.
23
Other Depreciation and Amortization. Other depreciation and amortization
expense for 1999 increased 21.5% to $10,731 or 2.7% of total revenues from
$8,833 or 2.7% of total revenues in 1998. This increase was primarily
attributable to amortization of goodwill resulting from acquisitions and to
increased expenditures on computer equipment, management information systems and
property and equipment needed to support our expansion.
Officer Stock Option Compensation. Officer stock option expense was $0 for
1999 and $3,198 for 1998. The expense in 1998 represented changes in the
difference between the estimated market value of the shares to be issued to a
key employee under an option agreement and the exercise price for these shares.
Liquidity and Capital Resources
During 1998, we completed an initial public offering of our Class A Common
Stock (the "Offering") and the sale of $200 million of Senior Subordinated Notes
due 2008 (the "Senior Notes"). We used the proceeds from these offerings to
reduce indebtedness under our revolving credit facility, repay a $100 million
term loan, repay certain mortgages, redeem our Series A Cumulative Preferred
Stock, extend our debt maturities to reflect the long-term nature of our assets
and provide increased operational and financial flexibility to allow us to
pursue our growth strategy.
During 2000, our operating activities provided net cash flow of $44.0
million as compared to $44.0 million for 1999. This increase is primarily
attributable to the growth in our operations resulting from an increase in the
number of rental locations that we operate.
Net cash provided by (used in) investing activities was $(53.9) million for
2000 as compared to $1.6 million in the same period for the prior year. The
change in cash from investing activities was due to the sales of Neff's equity
interest in S.A. Argentina and Machinery in the fourth quarter of 1999, and
decreased sales of equipment in 2000.
Net cash provided by (used in) financing activities was $9.7 million for
2000 as compared to $(46.0) million for 1999. The net cash provided by financing
activities was primarily attributable to net borrowings made under our revolving
credit facility in 2000, compared to 1999, when we used the proceeds from the
sales of S.A. Argentina and Machinery to reduce outstanding debt.
Based upon current expectations, we believe that cash flow from operations,
together with amounts that may be borrowed under our revolving credit facility,
will be adequate for us to meet our capital requirements and pursue our business
strategy for the next 12 months.
Our credit facility contains financial covenants requiring us to maintain,
among other things, a debt to EBITDA ratio of 4.25:1 and an EBITDA to interest
expense ratio of 2.50:1. We were not in compliance with these financial
covenants as of December 31, 2000, resulting in a default under the credit
facility. Our lenders have waived this default through May 23, 2001. As part of
the waiver, Neff's total borrowing capability was lowered from $219.5 million to
$155.0 million during the term of the waiver. Unless this waiver is extended or
the default is permanently cured by an amendment to the credit agreement, we
will be in default under the credit agreement as of May 23, 2001. At that time
our lenders could have the right to take actions that could adversely impact our
liquidity, financial condition and results of operations, including accelerating
the maturity of amounts due under the credit facility, in which case we might
may not have sufficient liquidity to meet our obligations. Management is
currently in negotiations with our lenders to amend the financial covenants in
the credit facility and permanently cure the default in exchange for payment of
a fee and an increase in the interest rates charged under the credit facility.
We do not expect payment of this fee or the increase in the interest rate to
have a material effect on our financial condition or results of operations.
Although negotiations have not been concluded and we do not have firm
commitments from our lenders, management is confident that these amendments to
the credit facility will be finalized by or before May 23, 2001 and, therefore,
is not considering any other strategic alternatives to ensure we have sufficient
liquidity to meet our obligations. We expect our operations will continue to
produce free cash flow during 2001 and we intend to use all free cash flow to
repay outstanding debt on the credit facility during 2001. Subject to the need
to amend our Credit Facility, we believe we have adequate capital resources to
continue as a going concern.
24
Inflation and General Economic Conditions
Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the
foreseeable future to have, a material impact on our operating results. Neff's
operating results may be adversely affected by events or conditions in a
particular region, such as regional economic, weather and other factors.
In addition, our operating results may be adversely affected by increases
in interest rates that may lead to a decline in economic activity, while
simultaneously resulting in higher interest payments for us under our variable
rate credit facilities.
Although much of our business is with customers in industries that are
cyclical in nature, management believes that certain characteristics of the
equipment rental industry and our operating strategies should help to mitigate
the effects of an economic downturn. These characteristics include (1) the
flexibility and low cost offered to customers by renting, which may be a more
attractive alternative to capital purchases; (2) our ability to redeploy
equipment during regional recessions; and (3) the diversity of our industry and
customer base.
Market Risk
Our financial instruments consist of cash, accounts receivable and fixed
rate debt and variable rate debt. Cash and accounts receivable are short term,
non-interest bearing instruments and are not subject to market risk.
We are exposed to market risks related to changes in interest rates.
Interest rate changes affect the fair market value of fixed rate debt
instruments but do not impact earnings or cash flows. Conversely for variable
rate debt instruments, interest rate changes generally do not affect the fair
market value but do impact future earnings and cash flows.
At December 31, 2000, we had fixed rate debt of $198.8 million and variable
rate debt of $147.1 million. Holding debt levels constant, a one percentage
point increase in interest rates would decrease the fair market value of our
fixed rate debt by approximately $3.4 million and increase interest expense for
our variable rate debt by approximately $1.5 million.
New Accounting Pronouncements
Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"), was
issued by the Securities and Exchange Commission and became effective during the
year 2000. SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the Securities and
Exchange Commission. We have evaluated the relevant revenue recognition criteria
disclosed in SAB 101 and we believe that it should not have a material impact on
our financial position or our results of operations.
We are required to adopt Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), as amended by Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" ("SFAS 137") and amended by Statement
of Financial Accounting Standards No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" ("SFAS 138"). SFAS 133, as amended
by SFAS 137 and SFAS 138, is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity shall recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value. We believe
that the adoption of SFAS 133 as amended by SFAS 137 and SFAS 138 should not
have a material impact on our financial position or our results of operations.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Financial Statements and Schedules
Page
Numbers
----------
Reports of Independent Certified Public Accountants...................................... 27
Consolidated Balance Sheets as of December 31, 2000 and 1999............................. 29
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998........................................................ 30
Consolidated Statements of Shareholders' Equity (Deficit) for
the years ended December 31, 2000, 1999 and 1998........................................ 31
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998........................................................ 32
Notes to Consolidated Financial Statements............................................... 33
SCHEDULES:
Report of Independent Certified Public Accountants........................................ 53
Schedule II-Valuation and Qualifying Accounts and Reserves............................... 54
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated
financial statements or notes thereto.
26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Neff Corp.
We have audited the accompanying consolidated balance sheets of Neff Corp. and
subsidiaries (the "Company"), as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Sullair Argentina
Sociedad Anonima (a consolidated subsidiary), which statements reflect total
assets of $71,960,577 at December 31, 1998, and total revenues and net income of
$27,138,214 and $3,175,507, for the period from July 1, 1998 through December
31, 1998. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Sullair Argentina Sociedad Anonima, is based solely on the report of such
other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and, for 1998, the report of the other
auditors, such consolidated financial statements present fairly, in all material
respects, the financial position of Neff Corp. and subsidiaries at December 31,
2000 and 1999 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements for the year ended December
31, 2000 have been prepared assuming the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial statements, the
Company was in default under certain financial covenants contained in its
$219,500,000 revolving credit facility. As of December 31, 2000, $147,121,000
was outstanding under the facility. The Company's lenders have waived the
default through May 23, 2001. Unless this waiver is extended or the default
cured by an amendment to the revolving credit facility, the Company will be in
default subsequent to May 23, 2001. This situation raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
regarding these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
March 29, 2001
27
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Sullair Argentina Sociedad Anonima
1. We have audited the consolidated balance sheet of Sullair Argentina
Sociedad Anonima and its subsidiary Sullair San Luis Sociedad Anonmia as of
December 31, 1998, and the related consolidated statements of income and of
changes in shareholders' equity and in financial position (cash flows) for the
six month period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion of these consolidated financial
statements based on our audits.
2. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. An audit does not provide assurance that the
Company's computerized systems or any other system, such as those from customers
and suppliers, are or would be year 2000 compliant. We believe that our audits
provide a reasonable basis for our opinion.
3. Accounting principles generally accepted in Argentina require companies
with controlling financial interest in the other companies to present both
parent company, where investments in subsidiaries are accounted for by the
equity method, and consolidated financial statements, as primary and
supplementary information, respectively. Because of the special purpose of the
financial statements, parent company financial statements are not included. This
procedure has been adopted for the convenience of the reader of the financial
statements.
4. In our opinion, the consolidated financial statements audited by us
present fairly, in all material respects, the financial position of Sullair
Argentina Sociedad Anonima and its subsidiary Sullair San Luis Sociedad Anonima
at December 31, 1998, and the results of their operations, the changes in their
shareholders' equity and the changes in their financial position (cash flows)
for the six-month period ended December 31, 1998, in conformity with accounting
principles generally accepted in Argentina.
5. Accounting principles generally accepted in Argentina vary in certain
important respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of consolidated net income for the mentioned periods, and the
determination of consolidated shareholders' equity and financial position at
December 31, 1998, to the extent summarized in Notes 10 and 11 to the
consolidated financial statements of Sullair Argentina Sociedad Anonima.
/s/Price Waterhouse & Co.
Buenos Aires, Argentina
February 16, 1999
28
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
--------------------------------
2000 1999
--------- ---------
ASSETS
Cash and cash equivalents ...................................................... $ 3,102 $ 3,374
Accounts receivable, net of allowance for doubtful accounts of
$3,323 in 2000 and $2,904 in 1999 .......................................... 42,341 53,740
Inventories .................................................................... 2,783 3,860
Rental equipment, net .......................................................... 303,863 285,863
Property and equipment, net .................................................... 28,803 25,638
Goodwill, net .................................................................. 85,696 88,008
Prepaid expenses and other assets .............................................. 8,379 11,223
--------- ---------
Total assets ..................................................... $ 474,967 $ 471,706
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable ....................................................... $ 18,029 $ 7,527
Accrued expenses ....................................................... 24,780 22,734
Credit facility ........................................................ 147,121 137,182
Senior subordinated notes .............................................. 198,818 198,670
Capitalized lease obligations .......................................... 456 742
Net deferred tax liability ............................................. - 643
--------- ---------
Total liabilities ................................................. 389,204 367,498
--------- ---------
Commitments and contingencies (note 12)
Stockholders' equity
Class A Common Stock; $.01 par value; 100,000 shares authorized;
16,065 shares issued and outstanding in 2000 and 1999 ................. 161 161
Class B Special Common Stock; $.01 par value, liquidation preference
$11.67; 20,000 shares authorized; 5,100 shares issued and outstanding
in 2000 and 1999 ...................................................... 51 51
Additional paid-in capital ............................................. 127,759 127,759
Accumulated deficit .................................................... (42,208) (23,763)
--------- ---------
Total stockholders' equity ........................................ 85,763 104,208
--------- ---------
Total liabilities and stockholders' equity ........................ $ 474,967 $ 471,706
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
29
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended December 31,
---------------------------------------------
2000 1999 1998
---------- ---------- ----------
Revenues
Rental revenue ............................... $ 192,990 $ 222,862 $ 179,014
Equipment sales .............................. 51,179 121,865 108,352
Parts and service ............................ 15,923 47,284 36,724
---------- ---------- ----------
Total revenues ......................... 260,092 392,011 324,090
---------- ---------- ----------
Cost of revenues
Cost of equipment sold ....................... 43,660 100,871 83,783
Depreciation of rental equipment ............. 44,724 55,159 56,336
Maintenance of rental equipment .............. 64,883 66,763 49,858
Cost of parts and service .................... 10,495 30,166 23,690
---------- ---------- ----------
Total cost of revenues ................. 163,762 252,959 213,667
---------- ---------- ----------
Gross profit ......................................... 96,330 139,052 110,423
---------- ---------- ----------
Other operating expenses
Selling, general and administrative expenses.. 61,574 74,893 60,347
Other depreciation and amortization .......... 9,884 10,731 8,833
Write-down of assets held for sale ........... 4,272 1,444 -
Costs incurred in efforts to sell the company. 4,282 - -
Officer stock option compensation ............ - - 3,198
---------- ---------- ----------
Total other operating expenses ......... 80,012 87,068 72,378
---------- ---------- ----------
Income from operations .............................. 16,318 51,984 38,045
---------- ---------- ----------
Other expenses
Interest expense ............................. 33,456 39,901 32,677
Loss on sale of subsidiaries ................. - 422 -
Amortization of debt issue costs ............. 1,307 1,197 3,178
---------- ---------- ----------
Total other expenses ................... 34,763 41,520 35,855
---------- ---------- ----------
Income (loss) before income taxes, minority interest
and extraordinary item ............................... (18,445) 10,464 2,190
(Provision for) benefit from income taxes ............ - (3,877) 134
---------- ---------- ----------
Income (loss) before minority interest and
extraordinary item ................................... (18,445) 6,587 2,324
Minority interest .................................... - (1,733) (1,111)
---------- ---------- ----------
Income (loss) before extraordinary item .............. (18,445) 4,854 1,213
Extraordinary loss, net of income taxes ............. - - (2,675)
---------- ---------- ----------
Net income (loss) .................................... $ (18,445) $ 4,854 $ (1,462)
========== ========== ==========
Basic income (loss) per common share:
Income (loss) before extraordinary item .............. $ (0.87) $ 0.23 $ (0.23)
Extraordinary loss, net ............................. - - (0.15)
---------- ---------- ----------
Net income (loss) .................................... $ (0.87) $ 0.23 $ (0.38)
========== ========== ==========
Basic weighted average common shares outstanding ..... 21,165 21,165 17,213
========== ========== ==========
Diluted income (loss) per common share:
Income (loss) before extraordinary item .............. $ (0.87) $ 0.22 $ (0.23)
Extraordinary loss, net ............................. - - (0.15)
---------- ---------- ----------
Net income (loss)..................................... $ (0.87) $ 0.22 $ (0.38)
========== ========== ==========
Diluted weighted average common shares outstanding ... 21,165 21,887 17,213
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
30
NEFF CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 2000, 1999, and 1998
(in thousands)
Additional
Common Stock A Common Stock B Paid-in Accumulated
---------------- ---------------- --------- ------------
Shares Amount Shares Amount Capital Deficit Total
------- ------- ------- ------- --------- ------------ --------
Balance, December 31, 1997 ........................... 8,465 $ 85 - - - $ (24,820) $ (24,735)
Net loss .............................................. - - - - - (1,462) (1,462)
Preferred stock dividends accrued -
Series A, B and C .................................. - - - - - (1,010) (1,010)
Accretion of Series A, B and C Preferred Stock ........ - - - - - (1,325) (1,325)
Exchange of Preferred Stock Series B and C for Class
B Common Stock .................................... - - 6,000 $ 60 $ 44,876 - 44,936
Conversion of Class B Common Stock
to Class A Common Stock ............................ 900 9 (900) (9) - - -
Net proceeds from Common Stock Offering ............... 6,700 67 - - 85,663 - 85,730
Redemption of Series A Preferred Stock ................ - - - - (2,768) - (2,768)
Other ................................................. - - - - (6) - (6)
------- ------- ------- ------- --------- ------------ --------
Balance, December 31, 1998 ............................ 16,065 161 5,100 51 127,765 (28,617) 99,360
Net income ............................................ - - - - - 4,854 4,854
Other ................................................. - - - - (6) - (6)
------- ------- ------- ------- --------- ------------ --------
Balance, December 31, 1999 ............................ 16,065 161 5,100 51 127,759 (23,763) 104,208
Net loss .............................................. - - - - - (18,445) (18,445)
------- ------- ------- ------- --------- ------------ --------
Balance, December 31, 2000 ............................ 16,065 $ 161 5,100 $ 51 $ 127,759 $ (42,208) $ 85,763
======= ======= ======= ======= ========= ============ ========
The accompanying notes are an integral part of these consolidated financial statements.
31
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
----------------------------------------
2000 1999 1998
--------- ---------- --------
Cash Flows from Operating Activities
Net income (loss) .............................................................. $ (18,445) $ 4,854 $ (1,462)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities net of acquisitions
Depreciation and amortization .......................................... 55,915 67,087 68,347
Officer stock option compensation ...................................... - - 3,198
Gain on sale of equipment .............................................. (7,519) (20,994) (24,569)
Minority interest ...................................................... - 1,733 1,111
Loss on sale of subsidiaries ........................................... - 422 -
Extraordinary loss on debt extinguishment .............................. - - 4,280
Deferred income taxes .................................................. (643) 3,423 (510)
Write-down of assets held for sale .................................... 4,272 1,444 -
Change in operating assets and liabilities (net of acquisitions and sales)